BJ's Wholesale Club Agrees to a $2.8 Billion Buyout

By MICHAEL J. DE LA MERCED

Published: June 30, 2011

5:00 p.m. | Updated

BJ's Wholesale Club agreed on Wednesday to sell itself to private equity firms for $2.8 billion in cash, the latest in a string of buyouts of retailers.

BJ's, founded in 1984, competes with much bigger rivals like Costco Wholesale and Sam's Club, a unit of Wal-Mart Stores. The chain, which is based in Westborough, Mass., has remained entirely in the eastern part of the country, with its 190 clubs located in 15 states from Maine to Virginia. Its new owners - Leonard Green & Partners and CVC Capital Partners - are likely to widen its geographical reach.

The deal will allow BJ's management team ''to accept earnings dilution, while preparing a national rollout by growing beyond its core markets,'' analysts at Janney Capital Markets wrote in a research note on Wednesday.

Leonard Green has been among the most active buyers in retailing over the last year, with deals for Jo-Ann Stores and, with TPG Capital, J. Crew. CVC also owns a number of retailers, including C1000 of the Netherlands and Cortefiel of Spain.

Leonard Green put BJ's in play last year when it made a quiet takeover proposal for the company, prompting the retailer to hire Morgan Stanley to run an auction process. BJ's acknowledged in February that it was up for sale. Last month, Leonard Green and CVC disclosed in a regulatory filing that they had made a bid for BJ's.

Under the terms of the deal, the buyout firms will pay $51.25 a share for the warehouse retailer, a 6.6 percent premium to BJ's closing price of $48.08 on Tuesday. It is also 38 percent higher than BJ's stock price on June 30 last year, the day before Leonard Green announced that it owned a 9.5 percent stake in the company.

Shares of BJ's rose 4.6 percent on Wednesday to close at $50.29. They have risen more than 35 percent since Leonard Green announced its stake last year.

The deal is expected to close in the fourth quarter, pending a vote by BJ's shareholders.

In addition to Morgan Stanley, BJ's was also advised by the law firm Wilmer Cutler Pickering Hale & Dorr. Leonard Green and CVC were advised by Deutsche Bank, Citigroup, Barclays Capital and Jefferies & Company. Those banks, along with GE Capital and Wells Fargo, also provided financing.